Tuesday, July 24, 2012

French connection or a Greek tragedy?

My article French connection or a Greek tragedy? was published in The Pioneer on July 19.

Hit by an economic slowdown, India has to choose between tough decisions to mend the situation or simply dawdle in misplaced hope and worsen the crisis. Europe provides a lesson for our policy-makers.

The refrain is, ‘Ça va mal’ (it’s bad). This is something that you can often hear in France these days.Even the serious New York Times admitted: “In France, austerity reaches Government cars and wine”, signs for the ‘common Frenchman’ that the situation is not rosy.No more glamorous ‘bling-bling’ in the Elysée Palace, like in President Nicolas Sarkozy’s days!Pointing to the hungry crowds of aam aadmis, the last Queen of France Marie Antoinette would have said: “Give them brioche, if they don’t have bread”. Did she really say it? The slogan nevertheless remains the hallmark of the Ancient Regime.Today, the ‘new regime’ of President François Hollande has decided to impose a ‘sober’ regime to give bread to all.It is even rumoured that Champagne, the sacrosanct beverage to celebrate important Republican occasions, will be replaced by Muscadet, a white French wine produced in the Pays de Loire region. C’est la vie!The Hollande presidency will certainly lack Sarkozy’s glamour.It started when Mr Hollande left his Paris residence for the swearing-in ceremony at the Elysée Palace. Instead of a long convoy with tens of luxurious cars, blaring sirens and a motorcade opening the road, Mr Hollande had a mini convoy which stopped at the red lights in Paris.The cartoonists loved the story; the next day Mr Hollande was shown on cartoons arriving at his new residence, driving a ‘deux-cheveaux’, the emblematic 1950’s Citroen ‘car of the people’.This made me dream: When the Indian Prime Minister recently visited Puducherry (where I live), the traffic was blocked for nearly two days, creating an incredible nuisance to the general public. But our leaders in India are not bothered about these ‘details’.Today in France, thanks to the economic crisis, Ministers of State no longer have bodyguards, even the staff in charge of the President’s security has been reduced by a third.Another sign of the ‘bad’ times: Mr Hollande used the Thalis, the fast train between Paris and Brussels, to attend a meeting of the European Union’s Heads of State. His Ministers are also strongly advised to use the train, whenever it is possible. The well-equipped presidential jet (at one time nick-named, Sarko One, in comparison to the Air Force One), will now often remain parked on the tarmac of an Air Force base near Paris.The President has also stopped using the fancy Presidential Citroen C6; he drives in a far cheaper Citroen DS5 diesel hybrid. He has even reduced the number of his official drivers from three to two.Cecile Duflot, the Minister for Environment, has ordered four ‘official’ bicycles for her and her staff. It is difficult to imagine the Indian Union Minister for Environment and Forests moving around on an electric bike in Delhi. One can always argue that the roads are more dangerous in India. It is true.On June 28, the French Prime Minister’s Office published a communique on the ‘budget framework’: The Government staff will have to be reduced by 2.5 per cent per year from 2013 to 2015. Only four priority Ministries are exempted (education, police, justice and paramilitary forces).In 2013, general expenses of the ministries (staff quarters, vehicles, equipment etc) will be reduced by seven per cent in comparison to the 2012’s budget, then four per cent in 2014 and 2015. It practically means a cut of 19 billons Euros for 2012.The French will obviously grumble confronted with such a tough situation. In any case, most surveys rate the descendants of the Gaulish tribes as the greatest grumblers in the world. The situation is however quite alarming.In India, some will say, it is their Karma; the colonisers pay today for exploiting Africa or Asia in the past. The messy economic situation in India is also blamed on the present predicament in Europe; even the Indian Prime Minister recently declared: “The world is passing through troubled times. The financial and economic crisis that has gripped Europe in recent years has many important lessons and implications for us.”When he attended the G-20 in Mexico, Mr Manmohan Singh linked the downfall of the rupees and India’s economic slowdown to the difficulties in Europe.This is wrong. Europe is in the sluggishness mostly due to mismanaged fiscal policies, simply spending more than it earned. Is India doing differently?Pierre Sellal, the French Foreign Secretary (Director General of the Ministry of Foreign Affairs) paid a discreet visit to Delhi at the time of the G-20 meet.In a speech organised by the ORF Foundation, he explained: “All in all, despite the scale of the challenges it was facing, the eurozone was able to take the required decisions on fiscal discipline to address the difficulties experienced by some of its members and to avert contagion and a negative impact on world growth.”Take another example. Mr Hollande has cut the salaries of his Ministers by 30 per cent; including his own (from $26,000 to $18,000 per month). It might be laughable, but it is a mathematical certitude that the present ‘crisis’ can only be solved by a better fiscal discipline; whether it is in Europe, in America or India.Laurence Parisot, the boss of the MEDEF, the main French federation of industries however fears ‘a programmed strangulation’. It is a difficult dilemma.India has not yet faced these thorny questions, though Standard & Poor’s Ratings Services recently downgraded India to a poor ‘BBB’. A report titled “Will India Be the First BRIC Fallen Angel?” was dismissed by the then Finance Minister.According to Standard & Poor’s, India could lose its ‘investment grade’ status because of a “divided leadership at the Centre unable to usher economic reforms to spur growth and boost investments”. The agency added that the Prime Minister often appears “to have limited ability to influence his Cabinet colleagues and proceed with liberalisation policies”.Whether the new Finance Minister is able to unleash ‘animal spirits’ is to be seen. The fact, however, remains that India will have to do some efforts to rein in its fiscal deficit. It is of course difficult to conceive today a 30 per cent cut in the MPs’ and MLAs’ salaries as it has been done in France (although surveys show that amongst 2,322 out of 4,835 MPs/MLAs, 48 per cent are crorepatis), Government wastage could certainly be looked into (and will be have to be looked into).This means that the ‘Centre’s allocations’ to unruly and greedy regional satraps will have eventually to be reduced.In the years to come, no country, no region will escape a better management of the ‘collective’ assets of the nation or region.It is better to start early than late in the day, like Greece.